The Role of Private Equity in Revitalizing Struggling Businesses
28 February 2025
4 Mins Read
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Private equity firms specialize in spotting businesses with strong potential but struggling execution. They dig into financial statements, looking for issues like declining revenue, high debt, or cash flow problems. But numbers alone don’t tell the whole story. PE investors also examine leadership, operational inefficiencies, and broader industry trends to determine whether a company’s challenges stem from poor management or external pressures.
One example is OpCapita’s investment in Game, a UK video game retailer that faced bankruptcy in 2012. Rather than writing it off, OpCapita saw an opportunity. The firm restructured operations, optimized costs, and revitalized the company’s product offerings. Just two years later, Game had regained profitability and was re-listed on the London Stock Exchange at a valuation exceeding £600 million. In 2024, it targeted (though later delayed) a US IPO at a valuation of $2.1 billion.
Outside of financial considerations, PE firms look for hidden strengths that can be leveraged. A company might have valuable intellectual property, strong brand recognition, or an established customer base—assets that, if managed correctly, could lead to a successful turnaround. The key is identifying businesses where targeted changes can yield significant improvements.
Of course, not every struggling business is a good fit for private equity investment. Some have issues that are too deep to fix, from unresolved legal problems to outdated business models with no clear path to reinvention. PE firms conduct thorough due diligence to ensure they’re choosing companies where their expertise and capital can make a real impact.
The PE Turnaround Strategy: Key Interventions
Once a private equity firm invests in a struggling business, the first priority is stabilizing the finances. Many of these companies have significant debt, so restructuring obligations or injecting fresh capital is often necessary. For example, when Cerberus Capital Management acquired Chrysler in 2007, the automaker was struggling with declining sales and high operational costs. Cerberus helped restructure Chrysler’s finances and guided its strategic direction, helping it weather an industry downturn.
In addition to financial restructuring, PE firms focus on operations. They bring in experts to streamline supply chains, cut inefficiencies, and modernize outdated processes. Technology upgrades, automation, and data-driven decision-making often play a major role.
“While profitability is central to private equity, the long-term success of investments often depends on improving the operational performance of portfolio companies,” says M&A expert Irina D’Amore.
A strong example is Bain Capital’s investment in Dade Behring, a medical diagnostics company. Bain guided Dade Behring through operational improvements and strategic mergers, positioning it for long-term success before its eventual acquisition by Siemens Medical Solutions.
Leadership changes are another common tactic. If a company is struggling due to poor management, PE firms often bring in seasoned executives with turnaround experience. Fresh leadership can energize a business, shift company culture, and implement a clearer strategy. PE firms don’t just invest capital; they provide hands-on guidance to ensure these strategies succeed.
Finally, long-term growth planning is key. The goal isn’t just to rescue a company but to make it competitive and sustainable. Whether that means expanding into new markets, refining product lines, or improving customer engagement, PE firms focus on setting businesses up for lasting profitability.
Balancing Private Equity’s Role in Business Turnarounds
Private equity firms play a vital role in helping struggling businesses recover and grow. While some critics focus on cost-cutting measures or workforce adjustments, the reality is that most PE-led turnarounds focus on strengthening operations, improving efficiencies, and positioning companies for long-term success.
“PE-backed companies outperform their public counterparts during periods of distress because the owners play a more active role in management,” says Hyder Kazimi, a turnaround expert with McKinsey.
For example, OpCapita’s investment in Game didn’t just involve cost-cutting—it included a complete digital transformation that helped the retailer adapt to changing consumer habits. Similarly, Bain Capital’s work with Dade Behring focused on operational improvements and strategic growth, rather than just financial restructuring. These types of interventions show that PE firms don’t just rescue companies—they make them stronger.
One common concern is the use of debt in private equity transactions. While leveraged buyouts are sometimes viewed skeptically, they can also provide the capital necessary to invest in better technology, new talent, and improved infrastructure. When managed responsibly, this approach helps businesses scale more effectively than they could on their own.
Another misconception is that PE firms prioritize short-term profits over long-term stability. The reality is that successful turnarounds require strategic investments in talent, operations, and market positioning. PE firms succeed when the businesses they invest in thrive—whether that means preparing a company for public re-listing, as with Game, or strengthening it for a future acquisition, as with Dade Behring.
The Future of PE in Business Revitalization
The role of private equity in business turnarounds continues to evolve. Many firms are adopting a more hands-on approach, focusing not just on financial restructuring but on operational excellence and long-term value creation.
Investors are also placing greater emphasis on sustainability and responsible business practices, recognizing that companies with strong governance and ethical leadership tend to perform better over time. According to Boston Consulting Group, 70% of private equity LPs believe companies that effectively manage sustainability issues will command a valuation premium over time.
Technology is playing a bigger role in PE-driven turnarounds as well. Data analytics and artificial intelligence help firms assess business viability, optimize decision-making, and pinpoint areas for efficiency improvements. These tools allow PE firms to execute turnarounds with greater precision, improving outcomes for both investors and the companies they support.
Looking ahead, private equity will continue to be a major force in revitalizing struggling businesses. With the right combination of capital, expertise, and strategic vision, PE firms don’t just save companies—they help them grow stronger, more competitive, and better positioned for the future.